Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Groupon Inc (NASDAQ:GRPN) from the perspective of those elite funds.
Groupon Inc (NASDAQ:GRPN) has seen a decrease in activity from the world's largest hedge funds lately. GRPN was in 21 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with GRPN positions at the end of the previous quarter. Our calculations also showed that GRPN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_747408" align="aligncenter" width="473"] Paul Reeder of PAR Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the recent hedge fund action encompassing Groupon Inc (NASDAQ:GRPN).
What have hedge funds been doing with Groupon Inc (NASDAQ:GRPN)?
Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GRPN over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Groupon Inc (NASDAQ:GRPN) was held by PAR Capital Management, which reported holding $150.7 million worth of stock at the end of September. It was followed by P2 Capital Partners with a $49.4 million position. Other investors bullish on the company included Ulysses Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to Groupon Inc (NASDAQ:GRPN), around 3.34% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, designating 2.61 percent of its 13F equity portfolio to GRPN.
Judging by the fact that Groupon Inc (NASDAQ:GRPN) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few money managers who sold off their full holdings heading into Q4. At the top of the heap, Michael Doheny's Freshford Capital Management dropped the biggest investment of all the hedgies followed by Insider Monkey, worth about $14.5 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $6.9 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 3 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Groupon Inc (NASDAQ:GRPN) but similarly valued. We will take a look at Change Healthcare Inc. (NASDAQ:CHNG), Granite Construction Incorporated (NYSE:GVA), American Woodmark Corporation (NASDAQ:AMWD), and Brookfield Property REIT Inc. (NASDAQ:BPR). This group of stocks' market values resemble GRPN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHNG,22,255472,-7 GVA,11,38136,0 AMWD,13,41896,4 BPR,14,60227,-2 Average,15,98933,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $274 million in GRPN's case. Change Healthcare Inc. (NASDAQ:CHNG) is the most popular stock in this table. On the other hand Granite Construction Incorporated (NYSE:GVA) is the least popular one with only 11 bullish hedge fund positions. Groupon Inc (NASDAQ:GRPN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on GRPN, though not to the same extent, as the stock returned 9% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.